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I O Mortgages To Go Bye Bye

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http://uk.finance.yahoo.com/news/interest-only-mortgages-for-the-chop-tele-c5270f9b20be.html?x=0

Interest only mortgages for the chop
, 8:44, Friday 13 August 2010
More than one million home owners on an interest-only deal face a sharp price rise when their current deal expires.
Banks and building societies are increasingly nervous about offering these deals to borrowers, ahead of new lending rules, designed to curb excessive lending.
Coventry Building Society has become the latest mortgage lender to stop offering interest-only deals to first-time buyers. And there are fears that other lenders may be reluctant to offer these deals to people remortgaging, particularly if they have little equity in homes. With house data suggesting a dip a prices again, this equity is likely to be squeezed further in coming months.
It is estimated that more than one million people took out these loans between 2005 and 2009, as house prices boomed.

Sensible lending will be the death of all that Gordon lived for.

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http://uk.finance.yahoo.com/news/interest-only-mortgages-for-the-chop-tele-c5270f9b20be.html?x=0

Interest only mortgages for the chop
, 8:44, Friday 13 August 2010
More than one million home owners on an interest-only deal face a sharp price rise when their current deal expires.
Banks and building societies are increasingly nervous about offering these deals to borrowers, ahead of new lending rules, designed to curb excessive lending.
Coventry Building Society has become the latest mortgage lender to stop offering interest-only deals to first-time buyers. And there are fears that other lenders may be reluctant to offer these deals to people remortgaging, particularly if they have little equity in homes. With house data suggesting a dip a prices again, this equity is likely to be squeezed further in coming months.
It is estimated that more than one million people took out these loans between 2005 and 2009, as house prices boomed.

Sensible lending will be the death of all that Gordon lived for.

That's brilliant, thanks RB.

I wonder how many of those currently on interest only deals will get repo'd when they are forced onto repayment?

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I honestly don't know what all the fuss is about, an IO loan is just the same a line of Credit.

If the banks are worried then the LVR will fix that.

I agree, and property only ever goes up, so whats the problem?

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That's brilliant, thanks RB.

I wonder how many of those currently on interest only deals will get repo'd when they are forced onto repayment?

....further down the article.....

HOW MUCH MORE WOULD A REPAYMENT MORTGAGE COST?

Exact costs will depend on the type of mortgage you have, and the interest rate. But assuming a borrower had a £150,000 mortgage that charges a rate of 3.5pc they would expect to pay £438 a month on a 25-year interest-only mortgage. If this was switched to a 25-year repayment mortgage the monthly payments would be £751.

Would suggest a 70% jump! Thats gotta hurt! My guess is that people will want to stay on their existing deal rather than remortgage. The snow hanging over the precipice of interest rate rises gets heavier and heavier!

Edited by Caveat Mortgagor

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I honestly don't know what all the fuss is about, an IO loan is just the same a line of Credit.

If the banks are worried then the LVR will fix that.

thank gould for the bulls, a loan is a line of credit....4 years on this site and something new is revealed every day.

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What goes Ha ha ha ha ha bonk?

A HPCer laughing their head off.

CAN MY BANK FORCE ME TO SWITCH TO A REPAYMENT DEAL?

No. If it has offered you an interest-only deal in the past it can't force you to switch, even if you don't meet its present lending criteria. You can continue on current terms, but may find you have less choice if you need to remortgage.

Edited by SarahBell

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What goes Ha ha ha ha ha bonk?

A HPCer laughing their head off.

CAN MY BANK FORCE ME TO SWITCH TO A REPAYMENT DEAL?

No. If it has offered you an interest-only deal in the past it can't force you to switch, even if you don't meet its present lending criteria. You can continue on current terms, but may find you have less choice if you need to remortgage.

So I guess you need to get very used to living where you are at present. :(

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That's brilliant, thanks RB.

I wonder how many of those currently on interest only deals will get repo'd when they are forced onto repayment?

It will be interesting to see if any of our IO loans get changed to repayments.

I will let fhe forum know.

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It will be interesting to see if any of our IO loans get changed to repayments.

I will let fhe forum know.

Who is 'our'?

So are IO mortgages for the lifetime oh the mortgage or are they a deal that expires, like fixed rates/trackers?

I've never bothered looking into them

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If they had any sense is agree that house prices are OTT.............then come up with a plan to bring them down, quickly but under some control...........i fear it will just CRASH!

Mike

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So I guess you need to get very used to living where you are at present. :(

or its a two year deal...or you havent read the bit that says you must provide a repayment vehicle...which most do Im told.

Break a significant term and its time for repayment....on demand.

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Exactly no one so far can expalin what is actually wrong with an I/O mortgage.

Moral hazard.

They allow financially naive and gullible people to take on more debt than they can afford to repay which results in society having to pay the price of their unwitting recklessness when either they or their lenders (or both as is currently the case) have to be bailed out.

IO mortgages / loans are very useful for professional, spohisticated investors who fully understand the risk that they are taking on and can afford to pay their own misjudgements. They have no place in a market dominated by financially uneducated amateurs.

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Surely any bank giving out IO's without proof of a capital repayment plan is being negligent right now? It's obvious most IO holders have no plans to pay back capital and they are going to default in massive numbers in approx 15-25 years' time (hoping my kids can pick up some bargains then!). Surely any director of a bank or building soc giving out new IO's can be accused of not carrying out their fiduciary duties and therefore should be struck off? One or two public accusations of bank directors doing this might be enough to stop it altogether.

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Exactly no one so far can expalin what is actually wrong with an I/O mortgage.

Its like paying rent--at the end of your stay you own nothing. It is also useless if you want to build equity to borrow against your house to buy a Vogue Rangerover or a 3 week bash in the Seychelles.

Banks love 'em because you never pay your debt off.

It was perhaps the vehicle that made the miracle so great. 20% a year HPI could not have been achieved without a combo platter consisting of:

IO

SI

Massive LTV

and compliant banksters

It was the stuff of miracles I tell yer!

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Moral hazard.

They allow financially naive and gullible people to take on more debt than they can afford to repay which results in society having to pay the price of their unwitting recklessness when either they or their lenders (or both as is currently the case) have to be bailed out.

IO mortgages / loans are very useful for professional, spohisticated investors who fully understand the risk that they are taking on and can afford to pay their own misjudgements. They have no place in a market dominated by financially uneducated amateurs.

And predatory commission hunters.

ooh yes, we can get you a mortgage...you can borrow more than you thought.!

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Surely any bank giving out IO's without proof of a capital repayment plan is being negligent right now? It's obvious most IO holders have no plans to pay back capital and they are going to default in massive numbers in approx 15-25 years' time (hoping my kids can pick up some bargains then!). Surely any director of a bank or building soc giving out new IO's can be accused of not carrying out their fiduciary duties and therefore should be struck off? One or two public accusations of bank directors doing this might be enough to stop it altogether.

Erm? Fiduciary duties?

2trn in bailouts suggests there may have been an oversight, here or there...mainly because lending wasnt the distribution of Capital and earning from the arbitrage of risks, but a vehicle to earn commission and sell the risk to unwitting bondholders, who were told there was little risk, they had insurance and better returns than safe "money origination" from government.

loans were and are "products"..packages of skimmed fat off the land...only its US that are on a diet.

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Who is 'our'?

So are IO mortgages for the lifetime oh the mortgage or are they a deal that expires, like fixed rates/trackers?

I've never bothered looking into them

Our BTL business.

We have loads of IO trackers with Woolwich (Barclays) and Skipton, which are BOEBR + 1% or BOEBR + 1.4% etc for the duration of the loan.

We have recently (since rates fell to such a madly low figure) been paying off chunks of the capital anyway.

I don't *think* that the lenders could just say "you have to go onto a repayment", or could they?

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Could someone who is good with Excel show how much is paid in interest on a 25 year, £100K mortgage at 5% for both repayment and IO mortgages?

I think that this will show why banks liked them so much.

p-o-p

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Exactly no one so far can expalin what is actually wrong with an I/O mortgage.

Nothing

IF

They are only given to people who are financially savvy and understand that the money will need to be repaid in some way. People who understand the difference between 'Line of Credit' and 'magic fairy free cash machine'

HOWEVER

If they are handed out like candy to people who could not afford a repayment mortgage, and so by definition do not have the means to repay the capital, then they result in house prices being bid up out of range of the prudent, plus a massive debt overhang that affects everyone. plus misery for the individuals involved.

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Our BTL business.

We have loads of IO trackers with Woolwich (Barclays) and Skipton, which are BOEBR + 1% or BOEBR + 1.4% etc for the duration of the loan.

We have recently (since rates fell to such a madly low figure) been paying off chunks of the capital anyway.

I don't *think* that the lenders could just say "you have to go onto a repayment", or could they?

I assume not if the IO is for the duration of the mortgage and it's not a short term deal.

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Erm? Fiduciary duties?

2trn in bailouts suggests there may have been an oversight, here or there...mainly because lending wasnt the distribution of Capital and earning from the arbitrage of risks, but a vehicle to earn commission and sell the risk to unwitting bondholders, who were told there was little risk, they had insurance and better returns than safe "money origination" from government.

loans were and are "products"..packages of skimmed fat off the land...only its US that are on a diet.

Quite right. Of course, they would be acting against their fiduciary duties right now if giving new IO mortgages if the banks have been told "no more bailouts". Has any government actually done that?

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Exactly no one so far can expalin what is actually wrong with an I/O mortgage.

There is nothing wrong with it when used in the correct way. IO mortgages used to only be sold when the borrower could prove they had a repayment vehicle. In recent years, this has gone out the window, with many expecting the rise in house prices to gift them the repayment at the end, plus some for retirement. In that respect, IO goes hand in hand with reckless lending and the expectation that house prices only ever go up.

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Exactly no one so far can expalin what is actually wrong with an I/O mortgage.

...if there is an assured repayment vehicle ...OK...but many were sold on affordability grounds which is a bit liked playing blind man poker with people who have no stakes....the lenders are looking to turn commission ignoring long term losses ....in a falling market this is suicidal.... lenders acting in this way should be closed down and banned from money lending....no ethics.... :rolleyes:

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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